5 Saving Money Tips From Warren Buffett

5 Money Saving Strategies Inspired By Warren Buffett

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Warren Buffet~Letter to shareholders, 2008

Buying on sale saves money, only if you use those savings towards investing for the future.

The Power of Saving

If you want to become wealthy, you must allocate some of your current earnings towards the future.

Carol and I became friends during my 20’s. She had a tough time of it in her early adult life. She got pregnant in high school, married her high school beau, had a beautiful daughter and soon after divorced.

As young adults, we enjoyed shopping at the outlet malls, TJ Max, Marshall’s, and the shops with great values on top quality, out of season clothing. To this day, I continue shopping this way.

Over the years Carol got her Bachelors and Masters degrees. She worked hard, supported her daughter and made a good life for herself.

Fast forward several decades and Carol married a wonderful man. They had a son who is off to college this year.

Oh, and did I mention that her current husband is a brilliant entrepreneur who patented some of the most important inventions of our day. And he is extremely wealthy.

I ran into Carol recently and our conversation turned to shopping. Since Carol is quite wealthy, I expected that she would be shopping at high priced designer shops.

When I asked where she got her sweater, she mentioned one of the outlet stores that we frequented in our earlier days. Carol remarked, “I’m still a bargain shopper”.

What do Carol and Warren Buffet have in common?

Both Carol and Warren Buffet understand how to spot quality and conserve resources. Buffet uses his money to multiply his resources through investing and compounding of those investment returns.

In order to amass funds for investing and building wealth, you can’t spend all of your money today.

Why Save and Invest?

Invest first, next reinvest the dividends and capital gains back into the financial markets.

“The wonder of compounding (sometimes called “compound interest”) transforms your working money into a state-of-the-art, highly powerful income-generating tool. Compounding is the process of generating earnings on an asset’s reinvested earnings. To work, it requires two things: the re-investment of earnings and time. The more time you give your investments, the more you are able to accelerate the income potential of your original investment, which takes the pressure off of you.” Investopedia.com

In order for the magic of compounding and saving to turn into financial security and long term wealth, you must take the first step and save. Without saving, you have no money to invest. And if you do not begin saving and investing, you’re depriving yourself of the opportunity for your money to make more money. These money saving tips From Warren Buffett are simple, not easy.

1. Spend Wisely

Think, wait, and ponder before spending. Consider, as you rip out your Visa card whether the $75 pair of shoes or new headphones today are worth sacrificing $1,123 at retirement?

If you invested that $75 in a diversified stock market index mutual fund today and that $75 grew 7% per year until retirement 40 years later, the original $75 would be worth $1,123. (That’s the power of compound returns)

2. Save For the Unexpected

Emergencies happen… to everyone. This year, we had a small fender bender. This set us back $1,000 for the auto insurance deductible, and our premium went up a few hundred bucks.

If you lack enough savings for emergencies, when that unexpected bill comes along you may be forced to take on credit card debt in order to pay for the unexpected expense. Next, find out why you don’t want to pay for emergencies with a credit card (unless you pay off the bill in full at the end of the month).

If you pay $1,000 to repair your car and don’t pay the bill immediately, here’s how much you’ll end up paying the credit card company.

Charge $1,000 on your credit card for an emergency car repair.

If you charge $1,000 on your credit card, which charges 18% interest, and you pay 2% of the remaining balance ($20 the first month), it will take you 151 months to pay off the $1,000. At the end of 151 months or over 12 years, charges will amount to $2,397 for an additional $1,397 in interest charges on top of the original $1,000.

Pay the minimum and you end up more than doubling the initial charge.

3. Think Long Term

It’s very easy to get consumed with the day to day concerns. Yet if you avoid saving and planning for the future, you’re likely to have a stressful retirement.

Money saving tips from Warren Buffett reminds us that money doesn’t grow overnight but takes a long time to build up. Be patient and understand that the magic of compounding takes time. Invest for the long term.

Start investing a small amount every pay period and over the long term, the money will grow exponentially.

$100 compounded at 50% per year

The chart shows how an investment of $100 compounds at a return of 50% (very unlikely) per year. At the end of year one, you earn $50. Add that $50 to the $100 and your investment is worth $150. Compound by 50% again and at the end of year two, you have $225 (($150 * 50%) + ($150)). At the end of year three, your initial $100 grows to $337.50.

The easiest way to invest is to automate saving. Have a portion of your paycheck transferred immediately to a retirement or investment account. If you don’t see the money, you won’t miss it.

So you see, with more time, your money makes more money on top of more money.

4. Limit What You Borrow

When buying a home or a car, you may need to borrow money. Understand how too much debt limits your chance to save money and become financially wealthy. Every dollar you put towards interest payments is one dollar that is not invested and growing your wealth.

Borrowed money compounds the initial price paid for an item.

Make a plan to get rid of credit card debt now to move towards wealth and prosperity.

5. Keep a Modest Lifestyle

If Warren Buffett can live in the same modest home for decades, why do you feel you need to live above your means? We live in a middle class neighborhood in a condominium in the midst of a large housing development.

I continue to be amazed at the apartment dwellers in the next building over driving BMWs and Cadillacs when they could be putting that monthly payment towards purchasing a home and building long term equity and wealth.

Live within your means and contribute to an investment account every pay period. Even if you don’t become as wealthy as Warren Buffett, you’ll be a lot richer than if you spent all the money that you earned.

18 Comments

He has to be the most quotable man in the world!! Great analysis of his ideas though Barb. I really loves the “from stocks to socks” quote and how it shows that his ideas are pervasive across many areas of life.

My wife is in sales and is friends with a few people that make a very good income. We were hanging out with them recently and when my wife commented on a picture on the wall, her friend said that they got it at Homegoods. I love it when people realize that quality doesn’t always mean expensive. You can find many great quality items for a reasonable price if you just do a little research and shop around.

I certainly make it a priority to save on what I need to buy; just because you have more money doesn’t mean you should spend more on the same quality! After all, you still work just as hard for your money and I hate to see it go to waste.

@Moneystepper, He’s so down to earth, in spite of his massive wealth. Who can’t learn from him?
@Jon, So true. There is a fallacy that the wealthy only buy luxury goods. I love looking at the expensive cars in the Wal Mart parking lot.
@Daisy, So glad you mentioned waste. No matter what your income, I abhor waste.

Along the lines of saving, investing, and keeping a modest lifestyle, my mom is a multi-millionaire who lives in a trailer park. Many people in the trailer park know my mom and wave at her, but they don’t have any idea she is worth millions. I am happy that she is happy living where and how she does.

Hi Barbara, Feel free to use my mom’s story. A little additional info: She is 89 years old, and can remember living through the Great Depression. She currently drives a Honda Fit. She had an ancient Honda Civic wagon before that. My dad’s state pension was set up so it would cover her after he passed away. Her income from Social Security and pension is a lot more than her expenses. She gives a lot of money to her alma mater every year, as well as her grandkid’s schools, PBS, and other causes she is interested in.

@Bryce, Adorable picture. I tweeted it out and put it on facebook. I’d love to shoot you some questions about your mom, her lifestyle and your upbringing and write about it on my site (with attribution). Let me know if you’re interested!

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I am a portfolio manager, former university finance instructor, and successful investor committed to sharing my personal finance expertise with you. I am not a licensed financial advisor. Please do not construe the suggestions on this website as recommendations for your personal situation. For any individual financial advice please seek your own licensed and/or registered personal financial adviser or CPA. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise.